National Association of Home Builders Discusses Economics and Housing Policy

Disappointing April Housing Starts

Housing starts fell 10.6% from an upwardly revised March figure to April. Revisions went back several months so that April level fell 10% below the first quarter revised average. Single-family starts fell 5.1% and were 4.6% below the first quarter average and multifamily production (2+ units) in April came in 22.2% below the first quarter average.

Building permits showed declines as well but not as severe and more in line with the averages from the first quarter. April single-family permits were 385,000, down 3.3% from first quarter average and multifamily permits were actually up 3% from first quarter average.

The Midwest and West saw increases in starts. The smallest region in total starts, the Northeast, saw a decline. The national decline (62,000) came entirely from the South (76,000 decline) and may have been a result of the storms racking the area in April. Similarly, the national decline in single-family starts (21,000) was concentrate in the South decline (17,000). Single-family permits fell or remained unchanged in all four regions.

Builders continue to sight foreclosures sales and lack of credit access for buyers and builders as the primary hurdles in the market. Buyers are bargaining for lower prices at the same time that builders are facing increasing costs due to energy and commodity price increases. Relief lies in an improving economy that brings more solid employment prospects and confidence to those with a job. Additional household formations from Generation Y will absorb some of the excess inventory and an increase in demand will stop any further house price declines, providing additional comfort to those concerned about future values.

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If you really believe that all will be fine when the economy stabilizes, unemployment is fixed and confidence about the economy rises, I’m afraid that you are in for a very long wait. Your analysis completely ignores the primary cause of the current new home market decline, the fact that home equity has been reduced by some $9 trillion. The lost home equity was the primary source of the down payment and closing costs for those moving-up, down-sizing and buying a second home. Without access to sufficient home equity, the new home market is likely to continue to decline. The sad fact of the matter is that, while the declines in values resulting from the initial bursting of the bubble in 2006/2007 were significant, government policies instituted to “save FHA” since that time have caused the most significant declines. If the regulation requiring a minimum of 20% or more down is instituted, most builders would be wise to build apartments.